STRATEGIES FOR MATURE AND DECLINING MARKETS Idil Yaveroglu Lecture Notes

Transition From Market Growth to Maturity to Decline The Transition or Shake out Stage of the Generalized PLC Time (years) Profit per unit (real dollars) Product category sales (real dollars) Introduction Decline or extension Maturity Competitive turbulence Growth Profit/unit Sales Life-cycle extension

Transition From Market Growth to Maturity to Decline The Maturity Stage of the Generalized Product Life Cycle Time (years) Profit per unit (real dollars) Product category sales (real dollars) Introduction Decline or extension Maturity Competitive turbulence Growth Profit/unit Sales Life-cycle extension Strategic challenges: Challenges in mature markets Sustaining a meaningful competitive advantage Challenges in declining markets Maximize cash flow and profit over the product’s remaining life

Common Strategic Traps During a Shakeout Period Failure to anticipate transition from growth to maturity No clear competitive advantage as growth slows Assumption that an early advantage will insulate firm from price or service competition Instructor: See Exhibit 10.1

Maturity Stage of the PLC Summary of Characteristics, Objectives, & Strategies SALES COSTS PROFITS MKTG OBJECTIVES Product Price Peak Low cost per customer High Maximize profits while defending market share Diversify brand and models Match or best competitors Distribution Build more intensive distribution Promotion Increase to encourage brand switching

Industry maturity …does not imply a lack of opportunity; nor does imply an absence of technological change. But… tends to reduce the # of opportunities for CA and shift these limited opportunities from differentiation-based to cost-based factors.

Innovation over the PLC Rate of Innovation Product Innovation Strategic Innovation Process Innovation Time

Sources of Strategic Innovation in Mature Industries Reconfiguring the value chain: Benetton and Zara in clothing Southwest & Ryanair in airlines Dell in PCs Redefining markets and products Swatch in watches Starbucks in coffee shops Barnes & Noble in book retailing Innovative approaches to differentiation Virgin Atlantic in air travel Sephora in cosmetics retailing Baden Fuller & Stopford – reconciliation of multiple (often opposing) goals in order to create new options: Maturity is a state of mind…not a state of business. It is the firm that matters…not the industry. Reconcile alternatives: quality at low cost; variety at low cost; speed at low cost; etc. Be selective – a firm’s market scope needs to be limited by its resources and capabilities. Create an entrepreneurial (intra) with freedom to experiment and the capacity to learn. Sequence the strategic and organizational development. Galvanize top management commitment; simplify by eliminating outdated/unnecessary activities/control systems; build the strategic capabilities needed; maintain momentum. Sephora Cosmetics, for instance, has befuddled the traditional cosmetics retail sector. In any department store worldwide, one would find counters representing the various brands: Estée Lauder, Lancôme, Chanel, etc. Sephora, however, has stores that display more than 600 different brands, wowing the customers because these are arranged alphabetically along a wall. There is a lipstick counter that sports more than 365 hues, arranged according to colour. By display, Sephora differentiates itself from other cosmetic houses by allowing customers to have access to and test the products. There is no bundling of purchases with gifts, just the items themselves. It captured twenty percent of the French retail cosmetics by the end of spring 1999 through its ambience, design and merchandise mix. The concept store has a wall of video screens, staff dressed in black with black gloves on one hand to show off the merchandise, and a black and white store layout. Staff work on a flat salary. It is an example of a new and attractive business concept.

Strategies for mature markets For maintaining current market share: Fortress defense Add flanker brands Pursue niche strategy For extending volume growth Increased penetration Convert current nonusers in target segment into users Extended use Increase frequency of use among current users Market expansion Develop differentiated positioning focused on untapped or underdeveloped segments

Marketing Actions for Accomplishing Growth Extension Objectives Increase penetration Convert non-users (you really need an electric fryer) Steal competitor’s customers (Shell gas is better) Extend usage Increase repeat purchase (don’t wait until it dies) Demonstrate new product applications (it dices too) Lead market evolution (oval, crust-less pizza) Expand market focus Review segmentation scheme (after-school activities) Consider underserved segments (retirees) Instructor: Refer to Exhibit 10.9 Increase penetration Convert non-users (you really need a Food Saver) Steal competitor’s customers (Shell gas is better) Extend usage Increase repeat purchase (don’t wait ‘till it dies) Demonstrate new product applications (it dices too) Lead market evolution (oval, crust-less pizza) Expand market focus Review segmentation scheme (after-school activities) Consider underserved segments (retirees)

Decline Stage of the Product Life Cycle Time (years) Profit per unit (real dollars) Product category sales (real dollars) Introduction Decline or extension Maturity Competitive turbulence Growth Profit/unit Sales Life-cycle extension

Summary of Characteristics, Objectives, & Strategies Decline Summary of Characteristics, Objectives, & Strategies SALES COSTS PROFITS MKTG OBJECTIVES Product Price Declining Low cost per customer Reduce expenditures and milk the brand Phase out weak items Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level

Early warnings of a coming decline Excess capacity Lack of technical change (stable product and process technology) Declining number of competitors, but some entry as new firms get assets “on sale.” High average age of resources. Aggressive price competition.

Factors Affecting the Attractiveness of Declining Market Environments Conditions of demand Exit barriers Intensity of future competitive rivalry Instructor: Refer to Exhibit 10.10

Strategies for Declining Markets Harvest Maximize short-term cash flow Maintenance Maintain market share for the short-term Profitable survivor Increase share of the declining market Niche Strengthen share position in one or a few segments Refer to Exhibit 10.11 Harvesting: staged withdrawal Maximize short-term cash flow Maintain or increase margins Optional withdrawal: wait and see Increase share at expense of margins Profitable survivor: dominate in the future Encourage others to leave Niche: focused domination Strengthen position with selected customer groups

Strategies for Declining Markets COMPANY’S COMPETITIVE POSITION Strengths in remaining demand pockets Lacks strength in remaining demand pockets Favorable PROFITABLE SURVIVOR or NICHE HARVEST DIVEST DIVEST QUICKLY Pockets of Demand INDUSTRY ENVIRONMENT Rate of Decline Price Pressure Unfavorable 32

Marketing Actions for Strategies in Declining Markets Harvest Eliminate R&D expenditures and capital investments Reduce marketing and sales budgets Reduce production costs Raise price if necessary to maintain margins Maintenance Design service programs Continue trade promotion Focus salesforce efforts Lower prices if necessary to maintain share Refer to Exhibit 10.12

Marketing Actions for Strategies in Declining Markets (continued) Profitable survivor Signal competitors Introduce line extensions Lower prices if necessary to increase share Consider agreements to produce replacement parts Niche Continued product and process R&D Produce for private labels Focus advertising, sales promotion, etc Maintain distribution channels Refer to Exhibit 10.12